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What are the negatives of filing
bankruptcy?
Probably the biggest and most obvious problem
with filing bankruptcy is how it will affect your credit.
A bankruptcy will likely show on a credit report for at least
seven years and will make obtaining future loans and other
forms of credit more challenging.
Unfortunately, credit is not the only consideration
when filing bankruptcy. In fact, if an individual is already
behind on payments, bankruptcy might not be that much to add
to a credit report.
However, bankruptcy is becoming much more expensive
with new laws in place and even much more difficult to be
eligible for. What's more, many attorneys are too quick to
advise clients to file. Why not? More business means more
money for attorneys. So it is important to find a good attorney
before filing bankruptcy.
Laws that came into being in 2005 are also causing
more problems for potential filers. A credit counseling course
is required within six months of filing bankruptcy even for
people who have taken such courses previously or who feel
that some of their debt problems are unfair or were caused
by unforeseen events such as lost job, an injury or even temporary
financial problems.
Bankruptcy also has a social stigma attached
to it. And as a matter of public record, some people may believe
that filing bankruptcy will make them notorious among their
peers. Between the fear of social persecution and the high
emotions that tend to run among people in difficult financial
situations, a person facing bankruptcy may feel guilty or
ashamed.
While it is unwise in any situation to make
a decision based on emotions alone, the impact that it can
have on relationships and self-esteem is something to think
about.
Bankruptcy also costs money, even more so since
stricter laws were passed in 2005. And there are also attorney's
fees in addition to the filing fees. Bankruptcy doesn't always
eliminate debt, either. Many people will be forced into filing
a Chapter 13 bankruptcy where payments are required rather
than filing a Chapter 7 simply because they make too much
money, even if income seems very low.
However, bankruptcy laws were originally written
to protect consumers. If a bankruptcy is really necessary,
then it may not be the worst option. Nevertheless, bankruptcy
should be avoided whenever possible.
Sometimes it is just as easy and much less expensive
to communicate with creditors and work out payment options
that are agreeable to both parties. This can help credit scores
from being so damaged, as well.
If you have to file for bankruptcy, you need
to understand that it can take several years to rebuild credit.
Making consistent payments and carrying a little credit while
paying regularly and time can help lessen the affects of a
bankruptcy.
It still takes time to do and there are alternatives
that should be considered before filing bankruptcy such as
attempting to work out an agreement with lenders or working
with a counselor to try and sort through financial issues.
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